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Reserve Bank of India Governor Raghuram Rajan on Thursday warned that a sharp slowdown in China’s economy remains a significant risk for the global economy and the region.
Delivering the inaugural address at the SAARC Finance Governor’s symposium in Mumbai on Thursday, Rajan said: “Work at the IMF suggests that a 1-per cent permanent negative shock to China’s GDP, caused by a one-off one-percentage decline in its real GDP growth, will knock off 0.23 percentage points from global growth in the short run.”
“The sharp contraction in China’s imports over the past year has already led to spillovers through the trade, confidence, tourism and remittance channels. SAARC nations have not been able to avert its impact. More negative externalities could follow as the Chinese economy adjusts to a more sustainable path,” he added.
Weak domestic demandHe observed that China suffered from weak domestic demand as it shifted from export-led to consumption-led growth after the crisis, in addition to the weak overseas demand. Besides, a number of sectors in China suffered from overcapacity and high leverage, he added. Rajan said fiscal consolidation by containing price rise, using better food management, a new inflation framework and a monetary policy tuned to circumstances were the first defence against the global slowdown. The RBI had also started cleaning up bank balance-sheets to support growth, he said.
Measures taken by the Centre, such as the passage of the Bankruptcy Bill, as well as steps to boost agriculture, deregulate business, allocate spectrum and mines, appoint the top brass at PSU banks, resolve distress in the power sector and expand financial inclusion were steps to increase transparency in India, he said.
“We look forward to a strengthening Indian economy as recent structural reforms take hold, and hope that some of this growth will spill over to your economies. In turn, we hope to be benefited as your economies pick up. Together, we can hopefully be an island of relative stability and co-operation in this turbulent world,” Rajan said.
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